La Administracion General de Aduanas dentro del Servicio de Administración Tributaria (SAT)

1. Can the loss on account of forfeiture of share application money be treated as short-term capital loss?

DCIT v. BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar.) Relevant Section: 45

The assessee company is engaged in non-banking financial business and applied for allotment of one lakh equity shares of the IDBI in response to the public issue of shares and remitted the share application money. The IDBI allotted 89,200 shares to the assessee as against one lakh equity shares applied for. Thereafter, the IDBI called the assessee to pay the balance sum for issuance of shares in its favour. As the assessee-company failed to remit the balance outstanding allotment money, the IDBI cancelled the allotment and forfeited the share application money. The assessee claimed it as a short-term capital loss in its return of income. The Assessing Officer disallowed the claim. The Commissioner(Appeals) confirmed the order passed by the Assessing Officer. The Tribunal allowed the appeal filed by the assessee.

The High Court held that consequent to the assessee's default in not paying the balance of money on allotment, its right in the shares stood extinguished on forfeiture by the IDBI.

The loss suffered by the assessee, i.e., the non-recovery of share application money was consequent to the forfeiture of its right in the shares and was to be understood to be within the scope and ambit of transfer. It would amount to short-term capital loss to the assessee.

2. Can the transfer of capital asset by a company to its wholly owned subsidiary company be regarded as transfer and, therefore, attract levy of capital gains tax?

CIT v. Coats of India Ltd. (2009) 315 ITR 215 (Cal.) Relevant Section: 47

The entire packaging coating units of the assessee was transferred to CCIPL for a sum of Rs.

29,89,87,000 by way of adjustment and issue of equity shares of Rs.10 each in CCIPL credited as fully paid-up share capital. In the process of such transfer a surplus amount of Rs.

19,14,55,804 was credited to the accounts of the assessee over and above the book value of the assets actually transferred to CCIPL. The assessee claimed that this excess amount was not taxable on the ground that the assessee transferred the assets of the company to its wholly owned subsidiary company. It was further stated that the unit was transferred with all its assets and, therefore, the value of each of the items could not be determined separately as the sale was made on slump basis and, accordingly, the actual profit from each asset

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could not be determined. The Tribunal held that the entire packaging coating business undertaking itself constituted a distinct "capital asset" under section 2(14) of the Income-tax Act, 1961, for which consideration was not determined with reference to individual assets but with reference to the capitalised value of the said business, that the proviso to section 47(v) and (iv) was applicable only if, in the hands of the transferee the capital asset on its transfer constituted stock-in-trade, that such packaging coating business on its transfer was not accounted for in the books of CCIPL as stock-in-trade and that, therefore, since the entire paid-up capital of CCIPL as on December 31, 1997, was held by the assessee the transfer of the undertaking was covered by the provisions of section 47(iv) and, therefore, no income under the head "Capital gains" was assessable in the assessment year 1998-99 .

The High Court held that the Tribunal was right and no capital gains arose.

3. Can the actual sale consideration recorded in the agreement to sell of the asset and received by the assessee be substituted by the value as adopted by the District Valuation Officer under section 55A of the Act for the purpose of computing the capital gains chargeable to tax ?

Dev Kumar Jain v. Income-tax Officer (2009) 309 ITR 240 (Del.) Relevant Section: 55A

The assessee declared income by way of capital gains arising from the sale of property. The Assessing Officer was of the view that the sale price disclosed in the agreement to sell was low and made a reference to the District Valuation Officer under section 55A for determining the fair market value of the property on the date of sale. The District Valuation Officer determined the value of the plot on the date of the sale and this was communicated to the assessee. The Tribunal accepted the stand of the Revenue that the actual sale consideration recorded in the agreement to sell should be substituted by the value arrived at by the District Valuation Officer under section 55A.

The High Court held that section 55A of the Income-tax Act, 1961, applies only where the Assessing Officer is required to ascertain the fair market value of a capital asset. Section 45(1A) stipulates that capital gains shall be computed by deducting from the full value of consideration received or accruing as a result of the transfer of the capital asset, the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto. A combined reading of section 45(1A) and section 48 shows that when a sale of property takes place, the capital gains arising out of such a transfer has to be computed by looking at the full value of the consideration received or accruing as a result of such transfer. The expression “full value of sale consideration” is not the same as “fair market value” as appearing in section 55A. Thus, for the purpose of computing capital gains there is no necessity for computing the fair market value. Further, there was nothing on record to show that the assessee received consideration for the sale of the property in excess of that which was shown in the agreement to sell. Thus, the actual sale consideration recorded in the agreement to sell and received by the assessee

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could not be substituted by the value as adopted by the District Valuation Officer under section 55A for the purpose of computing the capital gains chargeable to tax.

4. Can exemption under section 54(1) be claimed for the purchase of more than one residential premises?

CIT v. D. Ananda Basappa (2009) 309 ITR 329 (Kar.) Relevant Section: 54

The assessee a Hindu undivided family sold a residential house. The assessee purchased two residential flats adjacent to each other from taking two separate registered sale deeds in respect of the two flats situate side by side purchased on the same day. The vendor had certified that it had effected necessary modifications to the two flats to make it one residential apartment. The assessee sought exemption under section 54. The assessing authority gave exemption for capital gains to the extent of purchase of one residential flat. It was found by the Inspector that the residential flats were in the occupation of two different tenants. The Assessing Officer held that section 54(1) of the Act does not permit exemption for the purchasers for more than one residential premises. The Commissioner (Appeals) confirmed the order of the assessing authority. The Tribunal set aside the order of the Commissioner (Appeals) and held that the flats purchased by the assessee had to be treated as one single residential unit and that the assessee was entitled to full exemption.

The High Court held that it was shown by the assessee that the apartments were situated side by side. The builder had also stated that he had effected modification of the flats to make them one unit by opening the door in between the two apartments. The fact that at the time when the Inspector inspected the premises, the flats were occupied by two different tenants was not a ground to hold that the apartment was not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could have narrated the purchase of two premises as one unit in the sale deed was not a ground to hold that the assessee had no intention to purchase two flats as one unit. The assessee was entitled to the exemption under section 54.

5. Whether the assessee, in the computation of long-term capital gains, is entitled to deduction under section 54F of the Income tax Act in respect of investment in modification/expansion of an existing residential house?

Mrs. Meera Jacob v. Income-tax Officer (2009) 313 ITR 411 (Ker.) Relevant section: 54F

The Tribunal took the stand that exemption is available only when the investment is in the construction of a house and not for investment in modification or renovation. Admitted facts are that the assessee had a fairly big house to which the assessee made addition of 140 sq.

meters of plinth area. However, it is the conceded position that the assessee has not constructed any separate apartment or house. Section 54F does not provide for exemption on investment in renovation or modification of an existing house. On the other hand, construction

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of a house only qualifies for exemption on the investment. Even addition of a floor of a self-contained type to the existing house would have qualified for exemption. However, since the assessee has only made addition to the plinth area, which is in the form of modification of an existing house, she is not entitled to deduction claimed under section 54F of the Act.

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